Update on calculation of service tax under construction property 2016

Service Tax on under Construction Property is levied only on services provided by Builders or Real Estate Developers or any other person, where Building Complexes, Civil Structure or part thereof are offered for sale but Payment is received before the Issuance of Completion Certificate by a Competent Authority.

The service tax guidelines have been revised in the Budget 2015. At present, the Service Tax rate in India is changed from 14.5% to 15% w.e.f 1st April 2016.The government (vide amendment to notification No. 26/2012-ST), has also standardised the abatement "for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions" at a uniform 70 per cent. This now brings the effective service tax on residential property to 4.5 per cent. Earlier Abatement Scheme allowed 75% was allowed and Service Tax was to be levied only on 25% of the total purchase price (incl. of price paid for Land).

The tax will be payable on rest 30% of the cost from now on. But in case of charges such as Preferred Location Charges (PLC), Floor Rise Charges (FRC), initial maintenance charges and club houses, the service tax levied on them is standard at 15%.

For example According to the earlier law if you are buying a property costing Rs.75 lakh, you had to pay Rs.2.81 lakh (3.75% of Rs.75 lakh) as service tax. Similarly, if the value of the property is Rs.1.5 crore, service tax would be Rs. 6.75 lakh (4.5% of Rs.1.5 crore). But as per the new laws the service tax payable for a property worth Rs. 75 lakh, you will have to pay Rs.3.37 lakh (4.5% of 75 lakh).

Parking charges, (EDC/IDC) and lease rent (which to an extent is paid to the state government) are excluded from the service tax liability. Service tax is only payable on purchase directly from builders or developers. No service tax is payable on resale property purchase as there is no service provided.